Sales of annuities may not suffer the severe slide predicted by many analysts, according to a new poll which found 57 per cent of those with savings in defined contribution pension schemes would purchase an annuity with at least a portion of their fund.
The industry still looks set to endure a torrid transformation to the new liberalised world if the government proceeds with plans announced at last month’s Budget, however, with the same research revealing only 25 per cent would buy an annuity with their whole pension pot.
In the aftermath of the Budget predictions abounded of the market shrinking by as much as 90 per cent, with even Nigel Wilson, group chief executive of annuities provider Legal and General, forecasting sales would shrink by three-quarters from £11.9bn to £2.8bn annually.
Subject to industry consultation, the government has proposed removing all limits on the amount savers can take from their pension fund as chancellor George Osborne declared “no one will be forced to buy an annuity”.
The controversial plans would see savers able to take their whole fund as cash while paying only their marginal rate of tax on the three-quarters of the fund not already available tax-free, and have led to concern that many may simply spend their savings and fall back on the state.
Consultancy Hymans Robertson’s research of 1,000 defined contribution scheme members suggested such concerns were overstated, with just 12 per cent signalling they would treat their fund as a cash windfall.
The largest percentage, 32 per cent, said they would take a large portion of their pot as cash and spend the rest on an annuity to provide at least some guaranteed income in retirement.
While a quarter would purchase an annuity with their entire pot, a larger proportion, 31 per cent, would seek to use their entire fund to buy an income through other means such as through income drawdown or by purchasing a buy-to-let property.
While the stats may give some succour to the embattled industry, the research found evidence that the difficulties facing the annuity market may come into focus at a quicker rate than imagined as the older age groups closer to retirement displayed a more negative attitude to the product.
When questioned, 34 per cent of scheme members aged over 51 said annuities “are not flexible enough for [my] retirement plans”, compared to 20 per cent of people under 51. Similarly 38 per cent of older savers say annuities are “poor value for [my] savings” compared to 21 per cent of those aged 50 and under.
Overall, people are confident managing their pension pots following the reforms, with 61 per cent stating they are “confident” about self-managing their pension pots, compared to just 19 per cent who are not.
Chris Noon, partner at Hymans Robertson, said: “The chancellor’s Budget changes aren’t yet cold, but the mind-set of savers is clearly already changing. Greater trust and flexibility has been welcomed and annuities are set to be a product for the minority, not the masses.
“The confidence savers are showing on managing their own pots is positive. The reality is however that retirees are going to need tools to manage their pots over a 30 year period in retirement.